There were new records all around for the major indices on Wednesday as they kept chugging along on the back of the mega-cap growth stocks, most of which trade at the Nasdaq. Their leadership fueled the ninth straight gain for the Nasdaq Composite, which is up 4.9% over that span and is enjoying its longest winning streak in more than two years.
Low economic growth and low interest rates have placed a renewed premium on growth stocks, which have been flying on a trade-oriented triumvirate that includes buying the dip, the fear of missing out, and good old momentum.
One could really make it a quartet, though, as strong sales and earnings growth -- both actual and expected -- have provided a fundamental catalyst for many of the stocks as well.
Their leadership position looks to be entrenched, too, before today's open. The Nasdaq 100 futures are up 14 points and are trading 0.3% above fair value. The S&P 500 futures, meanwhile, are up two points and are trading 0.1% above fair value.
It doesn't take a stretch of the analytical imagination to understand why.
Key drivers remain in place:
- Long-term rates are heading lower, helped by weak economic data
- Central banks remain accommodative; and
- Earnings news continues to be better than expected
On related notes, the Bank of Japan and the ECB both left their really low policy rates unchanged. The Bank of Japan, in turn, pushed back the expected timeframe for hitting its inflation target to "around FY19" from "around FY18," leaving everyone with the impression that it won't be changing its ultra-accommodative monetary policy anytime soon.
The ECB aimed to do the same with a repeat clause in its directive that it, "...expects key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases."
ECB President Draghi said in his press conference that he sees a continued strengthening of the economic expansion and that risks to growth are broadly balanced. However, he dovetailed into a dovish-sounding perspective when he said underlying inflation has yet to show signs of picking up and that a substantial degree of accommodation is needed.
The euro nonetheless spiked in the wake of his remarks with traders cognizant that Mr. Draghi didn't go out of his way to dispel the notion that the ECB might soon announce a tapering of the bank's asset purchase program, saying simply the ECB is not setting a date for a QE change.
The irony of course is that a stronger euro will tamp down inflation, which is what the ECB doesn't really want, yet it is the path equity markets sure do like because low (and falling) inflation means low interest rates.
There will be plenty for traders to contemplate when it comes to the course of monetary policy for the ECB and the world's other leading central banks. For now, most stock markets appear to be comforted by the lower-for-longer perspective.
The Philadelphia Fed Index for July fit that script. It showed a drop in the index from 27.6 in June to 19.5 in July (Briefing.com consensus 22.0). A number above zero reflects expansion, yet the July reading marks the lowest level since November and matches some other sentiment surveys that have shown deceleration of late.
The initial claims report for the week of July 15, on the other hand, reflected continued tightness in the labor market. Claims decreased by 15,000 to 233,000 (Briefing.com consensus 245,000), marking the 124th straight week they have been below 300,000. Continuing claims for the week ending July 8 increased by 28,000 to 1.977 million.
Taking everything into account, the stock market is going to make a claim on extending its record levels when the opening bell rings.